Fair value adjustments on acquisition

RRobert11y ago

Hi mike, On acquisition, when the fair value of assets is greater than the book value, I don't understand why a revaluation surplus isn't created with the difference. I get that the Ppe carrying amount is increased, and effectively goodwill is valued at a lower amount than it would have otherwise been without the fair value increase. But why not show a revaluation surplus instead? Thanks mike

MikeLittleTutor11y ago#1

Because the adjustment is not actually written into the subsidiary's records - this is simply an exercise to reflect fair values in the interests of fair representation and to calculate goodwill correctly Ok?

RRobert11y ago#2

Thanks Mike, but I don't entirely get it. Why would it not be written in the subsidiary's records?

MikeLittleTutor11y ago#3

Why does the subsidiary have to write in the revaluation? If it wants the carrying value to remain at historic cost less accumulated depreciation, then fine. Actually, it leads to a more consistent approach in that the parent's assets could themselves also be carried at historic cost less accumulated depreciation

RRobert11y ago#4

Thank you mike

MikeLittleTutor11y ago#5

You're welcome